Analyst Cleland Turns Bullish on Cable
WASHINGTON -Citing a major court victory, Republican control of Congress, the White House and the Federal Communications Commission, a prominent Washington analyst has turned bullish on the cable industry for the first time in more than two years.
Precursor Group CEO Scott Cleland, who has frequently forecast regulatory gloom for cable MSOs, released a client report March 19 that painted an uncharacteristically rosy outlook for cable for the remainder of this year and perhaps beyond, warranting "a fresh and hard look from investors."
In a one-page report, Cleland cited several developments in recent months that have broken cable's way, such as the March 2 court decision that voided a host of cable ownership rules on First Amendment grounds and once threatened AT&T Corp.'s timetable for restructuring into four companies.
Cleland also said cable would benefit from the deregulatory climate favored by Republicans, from its stability in a recession that is "decimating" cable overbuilders and from its leadership in signing up residential subscribers to the high-speed Internet access services.
On top of all of that, Cleland proclaimed that "the worst of the open access threat" appeared to be behind the industry. He said the Federal Trade Commission's approval of the America Online Inc.-Time Warner Inc. merger contained "pretty benign" Internet access provisions that "resemble common carrier access very little."
Cleland indicated that cable can expect a Bush White House and an FCC headed by Republican chairman Michael Powell to shield the industry from new regulatory burdens, probably allowing cable to fatten its lead over the phone companies in acquiring new high-speed Internet subscribers.
"When you add it all up, they have a very positive outlook for 2001 and likely longer," Cleland said in an interview Tuesday.
In recent years, cable industry insiders seldom hid their distress after Cleland appeared on TV business shows and in national newspapers with his negative and pithy pronouncements about cable regulatory troubles at the FCC, in the courts and with local officials.
Asked to comment on Cleland's new perspective on cable, an industry spokesman said the analyst's timing was a little off.
"The time to be bullish was several months ago. As [a] potential recession has loomed, cable has held up beautifully. People will be zeroing in on home entertainment, and cable is a terrific value," said National Cable Television Associations spokesman David Beckwith.
Cleland came to prominence in 1994, when he correctly predicted the FCC under new Democratic chairman Reed Hundt would require cable operators to cut rates an additional 7 percent after a 10 percent reduction had been imposed the prior year.
He became bullish on cable after passage of the Telecommunications Act of 1996, which called for broad cable rate deregulation on March 31, 1999. But regulatory problems associated with cable consolidation and third-party access to cable Internet facilities caused Cleland to jump off the cable bandwagon in late 1998.
"We turned negative" in September 1998, Cleland said. "We thought open access was a trend that would occur either voluntarily or through regulation."
He added that cable had substantially quarantined the access problem with the FCC by launching open-access trials with unaffiliated ISPs.
The FCC is reviewing whether to mandate open access on cable operators, but Cleland said Powell is "highly unlikely" to take the FCC "in a direction threatening to cable deployment."
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